Market Plus: Elaine Kub

Dec 29, 2017  | 14 min  | Ep4319 | Podcast


Yeager: This is the Friday, December 29, 2017 version of the Market Plus segment. Joining us now is Elaine Kub ending the year 2017. If you had to give this year a grade on how the year was, all the commodities, you have to lump them all together, would they get a passing grade? I don't even know what your criteria would be, but this has been a stressful year for a lot of people, very little gains, very little movement up or down. You had to work really hard to make money this year.

Kub: Yeah, correct. I was going to say, as far as grading it, when you first ask it, like if you just ask for the entire financial world it has been an amazing year. I think the stock market has less volatility in 2017 than it has had at any time since 1964. So stock markets are great and there’s no real reason to look on the horizon and think that that's about to collapse in 2018. There's no real estate bubble about to burst that we know of, nothing that we know of, knock on wood, right. So that's fine. The commodities were equally non-volatile but that doesn't make anybody happy.

Yeager: You need a little volatility to maybe have an opportunity to make some money and we didn't have that.

Kub: Well, end users of feed grains, for instance, they probably appreciate low prices. But producers, yeah, this is non-profitable levels in many cases.

Yeager: You mentioned it during the show and I don't remember if it was soybeans or if it was corn, you talked about the stock market just a little bit and money coming into commodities. We need some money. At any point do we see any money coming from this stock market that has done so well coming into commodities?

Kub: Absolutely. I think it could happen immediately. I think it could happen on January 2nd folks could wake up and decide I'm going to get serious about diversifying into new asset classes and the money could come into commodities. It would come into energies first and then metals, copper has been doing very well, cotton can attract money. It will come into corn and soybeans probably last and if it comes into soybeans it will probably come in the position of new short positions.

Yeager: We need more of those?

Kub: No we don't need more of them, but I'm just saying, it could come in but I don't think it's necessarily going to be the immediate savior unless there was some sort of headlines that could bring in, I don't know, I can't think of anything right off the top of my head?

Yeager: Well and that's what you talked about, we didn't have, we have a lack of headlines in a lot of these markets. But we do have tweets. Do those count?

Kub: Sure.

Yeager: Alright. Kylo wants to know, as we get some of our great questions from all of you that watch the program, or read, Kylo is asking, there is still a strong protein premium for hard red wheat. Since the only thing we seem to have to offer on the export market is quality, is the protein premium going to hang around for the foreseeable future?

Kub: I think so if they haven't already blended it away and solved the problem that that premium structure is likely to remain. But one thing I have noticed is that the commercial traders, the millers, the bonafide hedgers in the wheat markets are not coming in with long positions. They have not been locking in the previously lower prices. So as far as the actual industry that wants to mill and create flour for consumers they feel that prices need to move lower overall for that milling wheat. Yes, the relative cost structure for the high protein stuff versus the low protein stuff, that is probably likely to stay in place, but the whole price point probably needs to shift lower.

Yeager: You talk about covering, maybe making sales at the end of the year, but we've had a trend for two, almost three weeks, do you expect it to continue past mid-January?

Kub: Not really, no, like I said I think it's due to shift lower.

Yeager: Okay. Short a little more I guess. Alright, we have another Twitter question. You can follow Elaine Kub @elainekub, by the way, if you're looking to follow people on Twitter. Gary in Fort Dodge, you can follow him @farmerNelson. Last year from the December/January lows and the February highs we rallied 96 cents in soybeans, 35 cents in corn. Everybody's great question, can we have a repeat performance please?

Kub: Yeah, Gary, I was looking at that exact thing, what was the trading range throughout the entire year? And it sounds better when you look at the entire year, there was those opportunities, there was a bit of a rally. Of course this can happen again. Seasonally we always tend to put some risk premium in those markets when there is late planting or another drought or continued drought or worsening drought because we're starting already behind on soil moisture in Iowa and certainly in the Dakotas. So sure, absolutely there is possibility that you could get some concern and some rally. But that rally in my opinion is not ever, under any circumstances in 2018, in my opinion, likely to make it much past $4 or $4.50 because there is so much, no matter, almost no matter how low yields are in 2018 the existing inventories could make up for those losses.

Yeager: On your drive from South Dakota to here, how many piles of grain did you see on the side of the road? A bunch, right? Not just in your home state but here as well in Iowa.

Kub: And like I mentioned on the show, the carry spreads are there convincing the elevators just keep on piling it, keep on holding that and the market will pay you to hold onto it.

Yeager: And normally there is a little bit of a trend between here and maybe July. The next big thing that could move this market is possibly the acres report but we're a long ways from that.

Kub: Oh yes, yes. So in the near-term, particularly for soybeans with that South American weather story and the just pre-existing trend and the fact that they're overpriced compared to corn technically, yes there's a lot of potential in the near-term for soybeans to continue lower.

Yeager: Alright, well, good luck Gary in Fort Dodge. @cornprice has another one. This one, we've talked about, we've kept it safe, now let's get dangerous. A fair market price asks, I think it's time to start talking about a set-aside program. Do you agree? This would be let's take some of those marginal acres out of production, take some of that extra inventory that comes from all that yield, is it time to think about that?

Kub: Well, Paul, do you want me to get political?

Yeager: Are you saying do I want you back on the show? Is that what you're asking?

Kub: I don't personally think that government intervention is very useful in the long run. And if you think of it logically, so let's say one individual farmer decides to do that, his neighbor will then take advantage of that and globally the same thing would happen. If we as the United States decided to take taxpayer money to do this, Canada would fill in the gap, Mexico would fill in the gap, Brazil would fill in the gap and certainly longer term we would absolutely see those acres come in from the marginal land in South America or Africa or Ukraine. There's lots of land throughout the world willing to come into production if the U.S. taxpayer decides to pay U.S. farmers to stop growing them. So I think we just have to hang in there and hope that demand, and I feel confident that in the long-term demand will catch up.

Yeager: Well, we know that as the NAFTA negotiations go on, Iowa Senator Charles Grassley last week was kind of hinting and was poking around USDA asking are there pots of money set aside in case NAFTA goes away. Is that something that --

Kub: What was the answer?

Yeager: Well, I don't think he, nobody says no, they think we're going to get a better deal if we pull out of NAFTA.

Kub: I hope so. When we talked about headlines, we'll hit on it again, is that that is one possibility in January is if the NAFTA negotiations go really well for agriculture, that's a headline that there could be some depression in the corn market right now that is priced in because people are worried about the NAFTA negotiations and if they go well and you saw headlines about that, that might release some of that pent up dismay.

Yeager: But we have had negative headlines about NAFTA --

Kub: If we had good ones.

Yeager: Well, but it didn't move the market the way you think it would.

Kub: But it shouldn't, the supply and demand, the global supply and demand of what exists and what people want to consume will be the same no matter what the trade agreements say.

Yeager: Sure, yes they'll find a way. There will be individual commodities, we'll make a deal, we'll just have a lot of little deals and maybe no big oversight. Let the free market work right?

Kub: Hopefully.

Yeager: Alright, Phil in Ontario, he's in Canada and I heard it's cold up there, but it's cold in the United States, Phil wants to know, he's @Agridome. He says, is there any potential for increased grain demand from biofuels globally specifically focusing on biodiesel demand and Chinese ethanol potential?

Kub: I think that is the big hopeful driver that would keep everything churning along is if we got continued consumer demand from emerging economies whether it is electric cars that need infrastructure built up for them, that will help commodity demand to build all of that, whether it is ethanol because more people in Asia will be driving and driving more miles, that would be great for commodity demand. Sure, absolutely, that's fantastic and that's the one thing that would keep this economy churning. We've had good growth in the developed countries, we need to see that growth trickle along into the emerging economies and then we could see another 25% growth or 3% growth in the global economy, 25% growth in the stock market. But overall we'd like to see that everywhere.

Yeager: Well, and domestically this week a report put us second best month or best month we've ever had in ethanol production in this country, Iowa 4.2 billion gallons of ethanol. We're producing it here. The ethanol plants are buying right now domestically. Stocks are declining a little bit. But crude oil is going up. Is this a recipe for a little bump in corn?

Kub: I'd be worried about reading too much into the crude oil price as a factor of demand. I think that is the temptation is to say oh there's great demand for energy and I worry that the crude oil price is a blip because of supply disruptions in Europe and then the arbitrage taking place between the Brent and the WTI right now. So I don't want to go out on that limb just yet.

Yeager: Alright, I want to talk energy. I mentioned something to you before we started rolling. Natural gas up 10.7%. Heating oil I think it's double digits I think I said earlier in three of those and the other one right behind at like 8%. We're going to have that spike. We haven't had this kind of winter in a couple of years. So is that just playing out, is this just a fundamental thing right now?

Kub: It seems like it, the timing of it seems like the energy traders just got caught unaware by the breadth, the widespreadness of this cold snap and the length of it. We always expect some sort of a cold snap in the winter but this one is unusual, this is colder than 2004 is the last time that we had anything this severe across the United States.

Yeager: Did you see the video in that story of Josh's where the guy came out and poured the water, boiling water, it was the top of Mount Washington in New Hampshire, it was like 38 below. Do you know what the wind chill was when he was out there? 83 below zero.

Kub: That's pretty cold.

Yeager: Get off the mountain. Alright, last question for you Elaine and I'll stop going off about the weather. Matt who wrote us on Instagram, follow us on Instagram, it's kind of fun. Check out the stories, they're always fun. Matt wants to know, the lack of a market for small grains and forage crops in Iowa is on his mind, Elaine. Will low corn prices help move us to more diverse systems in the foreseeable future?

Kub: Well, this is a pet topic of mine. Mathematically the concept of diversification is fantastic. And you look at a map of all the things that North Dakota grows and it is a much more resilient map because you have low corn prices, go plant lentils or sunflowers, but there's a sunflower plant in North Dakota and there's no sunflower plant in Iowa even if you could grow sunflowers here with all the humidity. So there's a couple of problems for Iowa specifically is that it is humid so it's not great for some of these small crops or you have problems even growing wheat and more importantly there is no real end market for it. So he asks in the foreseeable future, what would need to happen is you'd need to build some sort of an end market for these specialty crops and then you'd have a fighting chance. But I love it as a mathematical concept, diversification is where it's at. And if I could suggest anything to folks in the Western Corn Belt, that milo market is great. There's premiums for milo over corn which is historically unusual and China keeps on buying it, they like it for the gluten free stuff. So there's certainly opportunities. I don't know how Iowa is going to do it but for other parts of the Corn Belt it can be done.

Yeager: What are you talking about, they grow early season corn and late season corn, they're very diverse. And the Milo, we actually get a couple of questions about every two weeks and people wanting to know about Milo. So maybe we'll be talking about it sooner, maybe the next time you come back.

Kub: Sounds good.

Yeager: Alright, Elaine Kub, thank you so very much for joining us.

Kub: Thanks.

Yeager: Good to have you here. And we will soon begin the next round of our Market to Market Classroom project complete with video questions. We want to help you keep your New Year's resolution of being a part of the Weekly Journal of Rural America. Set your camera, record your macro-commodity question and send it to us via email at or message us on Facebook or Twitter for more details. And be sure to join us again next week when we'll see how researchers are hunting for answers to a devastating citrus disease and Dan Hueber will sit in the analyst chair here at the Market to Market table. So until then, thank you so much for watching, listening or reading, Phil. I'm Paul Yeager. Happy New Year.

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